Obama Says ‘Fiscal Cliff’ Deal Hinges on Top Tax Rates

Hemera/Thinkstock(WASHINGTON) — President Obama says he sees “potential” for averting the “fiscal cliff” in 28 days, but that no deal will get done unless Republicans consent to raise income-tax rates on the top 2 percent of U.S. earners.

“We’re going to have to see the rates on the top 2 percent go up and we’re not going to be able to get a deal without it,” Obama told Bloomberg TV in his first televised interview since the Nov. 6 election.

Obama suggested that Republican opposition to any increase in tax rates has stifled progress in negotiations and at least partly explains why he has not met more regularly with House Speaker John Boehner.

“Speaker Boehner and I speak frequently,” he said. “I don’t think the issue right now has to do with sitting in a room.

“Unfortunately, the speaker’s proposal right now is still out of balance,” he added, referring to the GOP plan unveiled Monday that would extend all income tax rates at current levels while imposing changes to Medicare and Social Security.

The GOP proposal would achieve $2.2 trillion in deficit reduction in the next decade, including $800 billion in higher taxes through elimination of loopholes and deductions, slower annual cost-of-living increases for Social Security benefits and a higher eligibility age for Medicare.

The plan contrasts sharply with the White House proposal, which calls for $1.6 trillion in new tax revenue — largely from higher rates on upper-income earners — modest unspecified savings from Medicare and a new burst of economic stimulus spending.

Both sides have dismissed out of hand the opposing proposal, raising the prospect of continued gridlock as the economy hurdles toward the “cliff.”

Income tax rates for the top 2 percent of Americans remain the immediate sticking point. Obama insists that rates must rise at the end of the year as part of any deal; Republicans oppose increasing rates on the wealthy.

Unless Obama and Republicans reach a compromise, a sweeping set of automatic, across-the-board tax hikes and deep spending cuts will take effect, potentially throwing the U.S. economy back into recession.

The “cliff” scenario results from a failure by Congress and the administration at previous intervals to take steps to reduce federal deficits and debt.

In the Bloomberg interview, Obama said he could be flexible on tax rates and entitlement overhaul, but only in broader discussions next year about revamping the tax code and social safety-net programs.

“Let’s let [rates on higher-income earners] go up and then let’s set up a process with a time certain at the end of 2013, or the fall of 2013, where we work on tax reform, we look at what loopholes and deductions both Democrats and Republicans are willing to close and it’s possible that we may be able to lower rates by broadening the base at that point,” he said.

The president also said he’s “willing to look at anything” that might strengthen entitlements and extend their financial solvency, but did not specify further.

Republicans continued to rebuff the president’s proposal Tuesday, claiming the $1.6 trillion package of tax increases could not pass either house of Congress, including the Democrat-controlled Senate.

“With our latest offer we have demonstrated there is a middle ground solution that can cut spending and bring in revenue without hurting American small businesses,” Boehner said in a statement.

House Republican leaders argued in a letter to Obama on Monday that agreeing to $800 billion in higher revenues was a significant concession for their party, which had always resisted tax increases of any kind.

“The President now has an obligation to respond with a proposal that does the same and can pass both chambers of Congress,” he said. “We’re ready and eager to talk with the president about such a proposal.”

Boehner was at the White House Monday for the annual holiday reception, but did not pose with Obama for a photo, as he has in the past. The two reportedly last spoke by phone Saturday in what aides described as a “curt” call. They last met in person Nov. 16, but have no planned future meetings.

Both men met separately today with a bipartisan group of the nation’s governors to discuss the “fiscal cliff” and how to minimize any fallout from the deficit debate on state economies.

“We don’t want middle class taxes to go up but we are not backing one plan over the other,” said Delaware Gov. Jack Markell, who chairs the National Governor’s Association, after a White House meeting.